Bitcoin mining is now using more electricity than 159 individual countries, more than Ireland or Nigeria, according to UK based energy website, Power Compare. That’s a huge quantum of energy that has made the network have a massive carbon footprint. Is renewable energy the solution? Find out.
Picture yourself as a player in a bitcoin mining game. Your target is to find a valid hash algorithm for a new block of transactions. Every time you find a valid hash, you win the block and are rewarded 12.5 bitcoins (current rate for reward) valued at USD 9000 and an additional USD 2000-2500 as transaction fees. It’s a fast-paced, exciting, addictive, and very rewarding game. It is estimated that globally miners are rewarded more than USD 100,000 every 10 minutes!
That’s a crucial time period because only one miner wins every 10 minutes and the hunt for the next valid hash starts right after. As the value of a bitcoin rises, the hunt for a valid hash becomes more complex and hence more valuable and rewarding. To stay on top of the game miners have to ensure that their hardware is state-of-the art, extremely powerful and energy efficient.
“The catch, however, is that the bitcoin mining algorithm is adjusted every 14 days to cope with this increased computing power that miners apply,” says Dr. Harald Vranken, Associate professor, Open University of the Netherlands & Radboud University.
“If the computing power increases, then the difficulty of finding a valid hash increases accordingly. Hence, in the end no one really benefits (except the companies selling mining equipment), but we face the situation in which more and more hashes are being computed, and hence more and more energy is being consumed,” he explains.
Reliable energy is critical because it means higher speed and better ability to mine bitcoins. But it takes a heavy toll on costs. According to reports, energy is the largest cost centre for miners accounting for 40-80% of estimated total mining costs of more than USD 1.5 billion. So, reducing energy costs via better hardware has been a huge priority for the sector over the past decade. What began as an activity on Central Processing Units (CPUs) went on to be replaced by GPUs (Graphics Processing Units) in the graphics cards of CPUs in 2010, Field Programmable Gate Arrays (FPGAs) in 2011, and Application-Specific Integrated Circuits (ASICs) 2013 onwards.
But despite the rapid transformation in hardware over the past few years, the energy bill of the sector is growing at an exponential rate. According to Power Compare, in November 2017, bitcoin’s estimated annual electricity consumption stood at 29.05TWh. ‘If bitcoin miners were a country they’d rank 61st in the world in terms of electricity consumption,’ notes Power Compare. It estimates that in October 2017 alone electricity consumption by bitcoin mining grew at about 29.98%. At this rate, bitcoin mining would consume all the world’s electricity by February 2020. It’s an alarming estimate that makes everyone wonder whether this growth is sustainable at all?
According to Digiconomist, ‘bitcoin’s biggest problem is not even its massive energy consumption, but that the network is mostly fuelled by coal-fired power plants in China. Coal-based electricity is available at very low rates in this country. Even with a conservative emission factor, this results in an extreme carbon footprint for each unique bitcoin transaction.’
But that trend may not last long as the landscape of the energy sector worldwide is changing in favour of renewables. According to reports, China, which accounts for almost 70% of the world's bitcoin mining pools, has asked industry to reduce its carbon emissions and may also impose taxes to control the domestic power market and digital currency operators.
“Because miners are extremely sensitive to electricity prices, they tend to locate in areas where electricity is cheap, which most often is where renewables are used: hydro, solar, wind. This gives electric utilities an incentive to further develop renewables, which reduces their cost, makes them more competitive, and hopefully accelerates the transition away from fossil fuel power plants,” says Marc Bevand, Independent Researcher & Angel investor.
For instance, cryptocurrency miners are reportedly setting up in the free-trade zone in Ciudad del Este in Paraguay, to tap cut-rate power generated from the nearby hydropower plant as electricity prices are about 1/4th that in neighbouring Brazil. Canadian utilities are wooing miners with cheap electricity and cooler climatic conditions to keep energy costs under control. Experts say that with renewables and power storage prices falling drastically and with most economies around the world set to control their carbon footprint, bitcoin miners will find it worth their while to become more environment friendly.